FDI Modes and Parent Firms' Productivity in Emerging Economies: Evidence from Taiwan

The Journal of International Trade & Economic Development: An International and Comparative Review, DOI:10.1080/09638199.2012.654401, 2012

Posted: 6 Jan 2013 Last revised: 7 Jan 2013

See all articles by Chia-Hui Huang

Chia-Hui Huang

Aletheia University

Tony Chieh-tse Hou

National Dong Hwa University

Chih‐Hai Yang

National Central University - Department of Economics

Date Written: February 6, 2012

Abstract

This article investigates the effect of foreign direct investment (FDI) on the productivity of parent firms for multinational enterprises in Taiwan. The current research specifically examines the potential differences in productivity effect between FDI toward developing (vertical FDI) and developed countries (horizontal FDI) and between electronics and non-electronics firms. Using panel data on Taiwan firms from 2000 to 2005, results obtained using propensity score matching (PSM) show that multinational firms experience a higher productivity following their FDI in developing countries. A time lag exists in productivity gain of investment to developed countries, and is relevant only to electronics firms. Employing the generalized method of moment of the panel fixed model to control for problems of endogeneity and unobservable heterogeneity, the empirical finding suggests that productivity effect caused by investing in developing countries remains significantly positive. A lagged productivity-enhancing effect is also found after FDI in developed countries for both electronics and non electronics firms.

Keywords: vertical FDI, horizontal FDI, productivity, propensity score

JEL Classification: F210, F230, L200

Suggested Citation

Huang, Chia-Hui and Hou, Tony Chieh-tse and Yang, Chih-Hai, FDI Modes and Parent Firms' Productivity in Emerging Economies: Evidence from Taiwan (February 6, 2012). The Journal of International Trade & Economic Development: An International and Comparative Review, DOI:10.1080/09638199.2012.654401, 2012, Available at SSRN: https://ssrn.com/abstract=2196955

Chia-Hui Huang

Aletheia University ( email )

No.32, Zhenli St.,
Danshui Dist.
New Taipei City, 25103
Taiwan

HOME PAGE: http://chhuang.epage.au.edu.tw/bin/home.php

Tony Chieh-tse Hou

National Dong Hwa University ( email )

No. 1, Sec. 2, Da Hsueh Rd.
Shoufeng
Hualien, 97401
Taiwan

HOME PAGE: http://faculty.ndhu.edu.tw/~tonycthou/

Chih-Hai Yang (Contact Author)

National Central University - Department of Economics ( email )

NO.300 Jung-da Rd.
Jung-li City
Taoyuan, 320,R.O.C
Taiwan

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